On 17 March 2026, the Prudential Regulation Authority (PRA) published a consultation paper in relation to modernising the liquidity policy framework (CP5/26).
Background
The PRA sets out in CP5/26 that existing liquidity standards were established in response to the global financial crisis of 2007/08 and have been supplemented by the PRA’s Pillar 2 liquidity framework for supervisors to assess broader and firm-specific risks. However, the PRA further explains that it considers that the existing liquidity framework does not sufficiently address such risks and that this therefore presents justification for modernising it.
Summary
The PRA sets out the following proposals intended to modernising the liquidity policy framework in CP5/26, including in relation to:
- Requiring firms to assess the composition of liquidity resources and monetisation risk: this would include firms evaluating their liquidity, identifying barriers to monetising assets, and conducting internal stress tests on how they would react to rapid outflows within a week (alongside a month in current reporting).
- Removing an exemption in relation to the Liquidity Coverage Ratio: this proposal would remove the exemption for sovereign bonds and other “level 1 assets” for annual testing of monetising non-liquid assets, intended to provide further assurance that firms are able to quickly raise liquidity.
- Encouraging firms to be operationally prepared to make use of central bank facilities when needed: this proposal would seek to clarify the role of central bank facilities within the prudential liquidity framework, in particular to enhance operational readiness to monetise assets and to align the PRA approach with the Bank’s transition to a repo led demand driven framework for the supply of reserves.
- Managing collateral: this would require firms to monitor and assess their pre-positioned collateral with central banks as an additional liquidity resource.
Next steps
This PRA has asked before responses to CP5/26 by 17 June 2026.